Is the SEC Captured? Evidence from Comment-Letter Reviews

by Jonas Heese, Mozaffar Khan, and Karthik Ramanna

Overview — Evidence from analysis of comment-letter reviews suggests a nuanced relation between politically connected firms and oversight by the Securities and Exchange Commission. SEC capture, if it exists, may be less blatant or pronounced than previously thought.

Author Abstract

SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.